The Companies Act 2013 outlines specific rules for private placement, ensuring transparency and protecting investors. These rules govern how companies can offer securities to a select group of individuals rather than the general public. Here's a breakdown:
Key Rules for Private Placement
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Identified Offerees:
- The offer must be made to specifically identified persons whose names are recorded by the company before sending the invitation to subscribe. You cannot offer securities indiscriminately. This targeted approach is crucial.
- The company needs to maintain a complete record of these offers in Form PAS-5.
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Maximum Number of Offerees:
- A private placement offer cannot be made to more than 200 persons in the aggregate in a financial year (excluding qualified institutional buyers and employees offered securities under a scheme of employee stock option as per provisions of clause (b) of sub-section (1) of section 62).
- This limit helps ensure that the offer remains private and doesn't resemble a public issue.
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Mode of Offer:
- The offer must be made through a private placement offer letter in Form PAS-4. This form contains crucial information about the company, the securities being offered, and the terms of the offer.
- The offer letter should be serially numbered and addressed specifically to the person to whom the offer is being made.
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Payment for Securities:
- Payment for the securities must be made from the bank account of the person subscribing to the securities. Companies are restricted from accepting cash payments for private placement.
- This rule aims to curb money laundering and promote transparency.
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Completion of Allotment:
- Allotment of securities must be completed within 60 days from the date of receipt of the application money.
- If the company fails to allot the securities within this timeframe, it must repay the application money to the subscribers within 15 days from the date of completion of 60 days. If it fails to repay within this 15 day period, it will be liable to repay that money with interest at the rate of 12% per annum from the expiry of the sixtieth day.
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Restriction on Further Offers:
- No fresh offer or invitation can be made unless the allotments concerning any previous offer or invitation have been completed, or that offer or invitation has been withdrawn or abandoned by the company.
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Use of Funds:
- The funds raised through private placement cannot be utilized until the return of allotment (Form PAS-3) is filed with the Registrar of Companies (ROC).
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Advertisement Prohibition: Companies are not allowed to release any public advertisements or utilize any media, marketing, or distribution agents to inform the public about its private placement issue. This further reinforces the "private" nature of the offering.
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Valuation Report: If the issue involves a non-cash consideration, a valuation report will need to be obtained from a registered valuer.
Penalties for Non-Compliance
Failure to comply with these rules can attract significant penalties under the Companies Act 2013, including fines for the company and its officers.
By adhering to these rules, companies can effectively utilize private placements as a means of raising capital while maintaining transparency and protecting the interests of investors.
